Part 1: Feeling the Pressure of Sustainability?
Part 3: SEC Proposed Amendment Potentially Impacts Supply Chain Companies
Part 4: Kicking Off Your Sustainability Journey
When clients call me, the following scenario is quite common. “Hello, my customer just told me that I must be ISO 14001 certified within 18 months. What’s ISO 14001?” Or “Hello, my customer wants an LCA on product 123. What’s an LCA?” The next sentence they say to me is usually, “not only do I not know what this is, I don’t know where to start.” So, let’s review some of these sustainability acronyms you might hear.
Some examples of these acronyms include ISO, LCA, PEF, EPD, LEED, ESG, SDG, GHG, SBT, GRI, CDP, SASB, TCFD, and VRF. While this is not a complete list, it covers some of the more common acronyms you may hear as you undertake your sustainability journey. So what is the meaning of each of these common sustainability acronyms? Lets take a look to see what each stands for and what they mean for your organization.
International Organization for Standards – This organization has developed a family of standards for environmental management, and it is known as ISO 14000. Companies can get certified to ISO 14001 as evidence of their commitment toward continuous improvement in environmental management. Another, ISO 14040 defines the principles and framework for life cycle assessment.
Life Cycle Assessment – LCA is a methodology used to quantitatively assess environmental impacts to air, soil, and water from cradle (raw materials from nature) to grave (end of life) for a certain product, service, or operation.
Product Environmental Footprint and Environmental Product Declaration – These are certifiable declarations used by companies wishing to make environmental claims about their products. Life cycle assessment (LCA) is the methodology applied to support eco-labeling, PEFs, EPDs and product claims.
Leadership in Energy and Environmental Design – LEED is a certification that is granted to a building based on the sustainable elements included in construction. Using the number of points earned, a building can earn a certificate ranging from the lowest level of LEED Certified to the highest level of LEED Platinum.
Environmental Social and Governance – ESG factors are used by investors and intended to produce credible data that drive business value. ESG reporting considers factors material to the industry in which the business operates, and includes focus on business strategy, risks, and opportunities. ESG contributes to value creation for investors as it drives things like cost savings, increased sales, improved employee satisfaction, improved branding, and stable supplier relations. To bankers, investors, and shareholders, attention to sustainability and ESG equates to risk mitigation. The logic is that improved transparency leads to improved performance.
Sustainable Development Goals – The United Nations rolled out 17 Sustainable Development Goals in 2016. These goals represent a framework for global transformation, promoting prosperity while protecting the planet. The point of the 17 UN SDGs is that ending poverty goes hand-in-hand with strategies that build economic growth and address a range of social needs including education, health, social protection and job opportunities while tackling environmental protection. Many companies will identify the 3-5 SDGs that best pertain to their business and use those to report on their progress toward this global initiative of sustainable development. I think that many smaller companies will find the UN SDGs as a great way to take a first step into sustainability reporting.
Greenhouse Gas – Increases in atmospheric concentrations of greenhouse gases, like carbon dioxide, methane and nitrous oxides are correlated with climate change. The Greenhouse Gas Protocol, established in 1997, was one of the first organizations to develop a global standard to measure and manage emissions with a goal for companies and organizations to become more efficient, resilient, and prosperous.
Science Based Targets – Started in 2015, the SBT initiative (SBTi) uses the GHG Protocol as the standard. Companies first commit to set a target, and then document and publicly disclose that target. Most companies with established SBT have included commitments for their supply chains to also drive reductions in their GHG emissions.
Global Reporting Initiative – A reporting standard that began in 1997 which aims to deliver organizational transparency regarding impacts on the economy, the environment, and people. It includes a universal standard as well as 40 sector-specific standards, and covers topics such as biodiversity, tax, human rights, waste, emissions, and environmental due diligence.
Climate Disclosure Protocol – Started in 2000 and used by both companies and cities, the CDP is a global environmental disclosure system that focuses on risk mitigation, protecting the environment, and improving the financial bottom line. There are sector-specific questionnaires for 16 high-impact sectors with A-lists published on the CDP website for excellence in climate change, water security, and deforestation initiatives.
Sustainability Accounting Standards Board – Founded in 2011, the SASB standard provides a common language to discuss ESG issues. Of course, different industries have different risks and each of the 77 industry-specific SASB standards provides the topics likely to be material for that industry.
Taskforce for Climate Related Financial Disclosure – Started in 2015, the TCFD is focused on improving and increasing the reporting of climate-related financial information. The core elements of TCFD include governance, strategy, risk management, and metrics.
Value Reporting Foundation and International Financial Reporting Standards – Driven by a demand for a common reporting framework and simplification of the corporate reporting landscape, consolidation efforts were announced in 2021. The alphabet soup of sustainability is in urgent need of consolidation with the realization that the investment community wants more than climate change, and truly E, S, and G are a way of understanding risk and comparing companies’ potential future financial performance. Efforts are currently underway to prepare consolidated climate and general disclosure requirements.
If you are thinking that this is what the largest publicly traded companies are doing, you are correct. If you are thinking that this does not pertain to you, that is probably not correct. Remember that companies of any size can be suppliers to large companies. As those large companies are facing pressures from their stakeholders to report, improve, and make ongoing commitments to sustainability, that pressure rolls to the suppliers. There is not one right way to demonstrate sustainability. When you hear something about sustainability, listen for the acronym. That will be your clue for what is important to your stakeholder. They are likely being driven by one of their stakeholders to demonstrate their sustainability with this particular focus. Remember that being intentional about sustainability includes stakeholder engagement, improved organizational performance, improved value creation and attracting or even maintaining business.
Aftan Engineering is a company based out of Pennsylvania that specializes in Sustainability and Continuous Improvement challenges. Led by Lisa Peterson, they offer services pertaining to Sustainability, ISO 14001 Compliance Preparation, Lean Six Sigma, Continuous Process Improvement (Manufacturing Optimization), Supply Chain Management, and 3D Printing (Additive Manufacturing).
Feel free to contact us or Lisa directly for more information about a sustainability compliance consultation or for any inquiries and/or questions.